Bahrain Petroleum Company

A considerable diplomatic back-and-forth developed during the following years in which the British government asserted its political influence when after a lack of British investment United States capital was attempting to gain access under the terms that were apparently, in the eyes of Britain, not meant to apply to foreigners.

On December 2, 1927 the exploration license was extended for one year by the Sheikh. The British Secretary of State for the Colonies Leo Amery in June 1928 instructed his political resident in the Persian Gulf to effect an alteration of the concession to include the stipulation that the lease holder had to be a company under British or British Dominion law. The Eastern and General Syndicate (EGS) sent three geologists to the island in the winter of 1927/1928, and by October 1928 had decided to attempt to get a further extension of the exploration phase and send more geologists.

When EGS could not find a British company willing to invest in the enterprise, they turned to an American company that was as member of the Iraq Petroleum Company subject to the Red Line Agreement and thus not outright able on their part to work the concession without first getting approval from the consortium. EGS had received one pessimistic prospect for oil from their first geologist, 4 optimistic prospects thereafter and were at the time planning to send geologist #1 back again to reexamine all available evidence.

Secretary Amery, acting via the Colonial Office (the conduit for all communication with EGS), then tried to get the British company clause inserted by asking EGS to try and insert it in the course of obtaining their second licence extension, to which EGS objected, because it would have alienated their option holder Gulf Oil and would have put EGS at risk of losing the concession and stranded their investment. EGS wanted the British government to lean on the Anglo-Iranian Oil Company (AIOC) or through AIOC on the Iraq Petroleum Company (IPC).

The lack of interest shown by AIOC and the Gulf Oil purchase of an option applied also to other EGS concessions that had been won: in Kuwait, Hasa province (Saudi Arabia, May 6, 1923) and the Neutral Territory between Saudi Arabia and Kuwait (May 17, 1924). It was Gulf Oil who had approached EGS after talking to an EGS geologist (T. George Madgwick) who had returned from the Middle East to the United States.

Two agreements were signed on November 30, 1927: (1) Gulf Oil's option on the Bahrein concession and (2) Gulf Oil's option on all other (Mainland) EGS concessions. EGS paid the 10,000 rupees annual royalty (Article VI) to the Bahrein state on December 2, 1928. Standard Oil of California (SOCAL), not restricted by the Red Line Agreement, had in the meantime bought the option from Gulf Oil and on January 11, 1929 had incorporated a Canadian subsidiary, the Bahrein Petroleum Company in anticipation of what would be acceptable to the British government and stood ready to begin work on the concession. In April 1929, EGS was still trying to get approval for the transfer of the concession to SOCAL from the British Colonial Office.

In an interdepartmental conference held in the Colonial Office on June 7, 1929, representatives of the British government prepared arguments to present to EGS that either their concession had lapsed (which was the result of British resistance), or that the request for an extension was (would have been) without merit. The conference then compiled a list of stipulations beneficial to the British government under which they would be willing to recommend to (allow?) the Sheikh to extend the licence. The company was to be registered in Britain, the chairman, managing director, local general manager and the whole local staff with some exceptions were to be British.

The Colonial office was delighted when in a July 19, 1929 meeting EGS did not dispute the right of the British government to impose restrictions and it was not necessary to make use of the prepared arguments. The American reply was essentially a refusal of all conditions. They opposed most strongly lack of control over local personnel in charge.

[...] (5 months of correspondence skipped over)

EGS paid the 10,000 rupee annual royalty on December 2, 1929.

[...] (9 months of correspondence skipped over)

The concession was formally assigned to the Bahrein Petroleum Company Ltd on August 1, 1930. BAPCO applied for the prospecting licence to run for two years from December 2, 1930.

The following four conditions were eventually imposed (June 12, 1930):

BAPCo had to be a British Company registered in Canada, but maintain an office in Great Britain run by a British citizen as a conduit for communication between the company and the British government.

1/5 directors had to be a British citizen, appointed in coordination with the British government, with the salary paid by the company.

The company had to maintain a Chief Local Representative, approved by the British government, who would be authorized to deal with the local population, local authorities and through the British Political Agent in Bahrein with the Sheikh. Frank Holmes was appointed to the position for the first 5 years.

As many employees as is consistent with the efficient operation of the business had to be either British or Bahreini citizens.

Oil found in 1932

In June 1932 the Jebel Dukhan No. 1 well (Dukhan Hill No. 1) at the southern base of the hill struck oil at a depth of 2,008 feet and flowing at a rate of 2,400 bbl/day, in January 1933 No. 2 well, 2.5 miles north of No. 1 and drilled with the same cable tool rig, struck 33° API gravity oil at the same depth flowing at a rate of 1,500 bbl/d. A rotary drill was substituted at No. 3 well at a depth of 1,635ft in order to explore lower lying strata.

Once oil was found, the conditions were very favorable. All the technical equipment needed to lay a pipe and construct a loading dock from local building materials could be fitted on a single ship. The tanker El Segundo with a crew of 46 sailed from San Pedro on December 30, 1933 and arrived via Mumbai on February 22, 1934. She anchored 16,000 feet offshore beyond the stretch of shallow water that was to be bridged by a 12-inch pipeline resting on the ocean floor.

Five 8-ton anchors at the loading berth held in place 5 marking buoys at a depth of 50 feet of water. On the island of Sitra, 3 tanks totalling 250,000 barrels and one 7,500 barrel tank for ballast water were erected from sheet steel brought by the El Segundo. From the terminal on Sitra to the wells, 10 miles of 6 and 8-inch gathering lines were laid. The loading capacity of the terminal was built to an initial 10,000 barrels per day. A road was built to the terminal, including 1,200 feet of a trestle and a draw bridge.

On June 7, 1934 the El Segundo departed with the first load of 25,000 barrels, bound for the Imperial Japanese city of Yokohama, and brought 500 barrels back for analysis to Richmond, California where she arrived on August 1. And so, Bahrain oil entered the market a few weeks before the first oil from Kirkuk.

In 1935 the decision was reached to build a 10,000 bbl/d refinery and ground was broken in October 1935 at a site on the northeast of the island opposite Sitra between the oil field and the loading dock. Before it was completed a contract was let for the second unit to double its capacity, at which point it began limited operations of those parts of the processing chain already completed. The Oil and Gas Journal published a technical description in the 1937-12-30 issue, stating the capacity as 25,000 bbl/d, but in principle already capable of more if a few bottlenecks were removed.

The official opening ceremony took place on December 11, 1937. By then, there were three 12-inch, one 10-inch and one 8-inch sea loading lines, one for each type of refined product, and 2,407,150 barrels of storage capacity of which 541,200 were for crude oil. Exports of crude petroleum fell from 4,286,000 barrels (11,742 per day) in 1937 (most of it to France, Italy, Japan) to just 336,000 barrels in 1938 and stopped entirely afterwards. Bahrein became an importer of crude oil and an exporter of refined products.

Saudi Arabian crude was delivered by barges to a new terminal at Zellaq from where it was pumped through a 6-inch pipe line to the nearest tank farm. The Dammam No. 7 well struck oil on March 3, 1938, deliveries via Zellaq began in September 1938. The last shipment was received on March 3, 1945 and with the completion of the 12-inch line to the mainland the terminal was dismantled. On occasion mainland crude was also delivered by tankers to the Sitra terminal, before and after completion of the pipe line.

On June 30, 1936 the California Texas Oil Company (Caltex) was incorporated as a wholly owned subsidiary of BAPCO. The new holding company owned the shares of 5 former Texaco marketing subsidiaries which had heretofore been supplied by Texaco from production in the United States and whose assets had a book value of $27 million. These were:

The Texas Company (Australasia) Ltd.

The Texas Company (China) Ltd.

The Texas Company (India) Ltd.

The Texas Company (Philippine Islands) Ltd.

The Texas Company (South Africa) Ltd.

In exchange Texaco was awarded a 50% stake in BAPCO.

The Italian air force bombed the refinery on October 19, 1940, but caused practically no damage except that resulting from changing allocation of military resources in the aftermath.

In 1945, a 34 mile 12-inch 62,000bpd pipeline was laid to connect the mainland's Dammam field to the refinery on Bahrein Island, whose capacity was concurrently increased to 60,000 barrels per day. The Ras Tanura refinery and associated pipeline infrastructure was built at the same time and began initial operations at 50,000bpd a little later at the end of 1945. Oil Weekly included a pretty map of all the infrastructure in the 1945-07-30 issue.

In 1953 Aramco laid 16.4 miles of underwater 12-inch loop line which increased the capacity of the link to 185,000bpd with the option of 195,000bpd (pipe pressure limit) which was planned to be reached in 1954 with some upgrades of pumping equipment. Capacity of the refinery in 1953 was 215,000bpd and Bahrein produced 30,100bpd themselves (at a remarkably steady rate).

Until June 1939 a total of 56 and until January 1, 1946 a total of 74 wells had been drilled: 62 producers, 4 observation and 8 were shut-in. In June 1953 a portable rotary rig, capable of drilling to 4,000ft and built by the National Supply Co of London sailed from London for Bahrein.